How to Pull Double-Digit Gains in a Terrible Market

Talk of a bubble last year set biotech up for a decline from all-time highs. This year, scandals over drug pricing only contributed to the anti-biotech pile-on.

Plus, we’re in an election year. The prospect of regime change often upsets investors, who crave continuity and predictability.

Uncertainty regarding the future of some pharma and biotech companies has only been amplified by statements and positions taken by presidential candidates regarding drug pricing.

All taken together, it’s been a perfect storm for biotech. While there’s been some recovery from this past summer’s lows, the Nasdaq Biotechnology Index is still down over 21% this year, making it one of the market’s worst-performing sectors.

Late last month, it looked like the sector might finally break out, but it’s been a relentless decline ever since.

My colleague, Greg Guenthner, has been following biotech closely this summer. ”The biotech sector was one of the hardest-hit areas of the market over the past couple of years. But it enjoyed a nice summer rally. Now that the summer strength is gone, we’re left watching these speculative names push to three-month lows…the chart is scaring the bejesus out of investors”

He’s right. The biotech chart is downright scary:

Does that mean we’re throwing in the towel on biotech?

Far from it.

First, much of the alleged price gouging on pharmaceuticals that has drawn the public’s ire, as well as political attention, are for drugs and therapies that have been on the market for years or decades.

True, some pharmas have gamed the system and exploited loopholes in order to ensure a degree of exclusivity that gives them monopoly pricing power. The FDA’s own regulations allow for this sort of behavior.

The drug market truly needs some regulatory change that makes it easier for generic competition to come online.

However, I expect that a small biotech that develops a new therapy for a serious condition that’s more effective or safe than what’s on the market will still be able to command a high price no matter who wins the election next week.

Second, even in a biotech stock market environment as dismal as 2016’s, big profits can still be made on small biotechs that achieve clinical, regulatory and commercial success.

Take my newsletter, Agora Financial’s FDA Trader, for example…

In April, we scored a 51% gain in less than a month when a dermatology biotech was acquired.

In June, we took the money and ran with a 64% gain on one biotech that successfully received an approval for a cancer nausea and vomiting drug and posted positive clinical results for an ovarian cancer therapy.

In July, we hit a triple-digit jackpot when we sold a tiny sickle cell disease therapy developer ahead of clinical trial news.

In August, we sold a small autoimmune disease specialist for a 44% gain after early Phase 3 data made an impression on the market.

In September, we walked away from the table with a 51% gain off a Phase 3 trial in a biotech working on improving treatment options for diabetics.

Do you see a pattern here? Every single gain we’ve posted in the list above is tied to positive clinical data in some way.

And every single gain in each of these examples had little to do with the overall market environment.

Each gain had everything to do with factors specific to the company in question.

It’s been a biotech stock picker’s market, and each of these stocks was purposefully picked for the potential for big gains based on important biotech-specific catalysts.

So yes, biotech is suffering. And November might not shape up to be any brighter for this beaten down sector. But it doesn’t mean you can’t still make money. You just have to know how to play your cards right.

About Ray Blanco:

In 8th grade Ray Blanco was in his basement learning how to build what’s called a “Wilson Cloud Chamber,” a supercooled device for detecting particles of ionizing radiation. Now, he is an expert in advanced robotics, avionics, genomics, and biotechnology. Blanco was raised in Miami, FL, after his family fled Cuba in the 1960s. He is the editor of Technology Profits Confidential, FDA Trader, and contributes to Breakthrough Technology Alert and Tomorrow in Review.